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Thursday, 3 March 2011

What is the purpose of this article? Lest it is seen as a cantankerous rant against a justifiably good business arrangement for the good of the country, let's spell out the objectives.

1. To raise the possibility that PETRONAS hasn't been upfront about defining what is a marginal field.

2. To raise awareness that the commercial terms by which PETRONAS entered this RSC may not be in the interests of our country.

3. To question whether the RSC method is the best deal or is it just a scheme to enrich selected people?

4. To discover the basis of PETRONAS's choice of equity partners with petrofac.

5. Who decides on Petrofac? How was it chosen among the many players in the market? Who decides on Petrofac as the Project Delivery Partner (since this term is now vogue).

6. What is the USD 800 million for? This is cost oil? How do the incentive and correspondingly penalty elements figure in the profit oil portion?

7. Is there a time limit for the extraction upon which either incentives or penalties are enforced?

8. To pressure PETRONAS to be transparent in its revelations to the public as to how it conducts its business, it appoints contractors; it shares its profits and applies its profits.

When PETRONAS was formed, the government knew it hasn't got the technical knowhow to manage and exploit our oil and gas resources. The solution was to leverage on the capabilities of the oil majors operating in Malaysia then. The main players then were Shell and Esso. A scheme was devised where a commercially viable partnership can exist between the resource owner who owns the resource and the technology owner. Both need to be compensated for the ownership of their respective resource. The government tasked Tengku Razaleigh Hamzah to come out with such a scheme. This was the origins of the Production Sharing Contract.

The scheme in itself is easy to understand. The oil majors and exploration companies get to extract oil and gas from Malaysian owned sources. They get to recover fully the costs (OPEX and CAPEX up to the point of extraction. In addition they get to share what is produced over and above the costs on an agreed basis. The get the oil equivalent to the costs they have sunk in- this is the cost oil portion of the produced oil. After subtracting cost oil, they have oil which can be sold for profit- profit oil. They then divide the profit oil upon agreed terms.

The practice I think is PETRONAS to share with its exploration partner on an 80:20 basis. Also if I am not mistaken, all the CAPEX Items become the property of PETRONAS. So when you go to Miri Shell for example, while the refinery and all the property and chattels therein are operated by Shell, they do so as custodian of what will eventually become PETRONAS property.

Because it is simple and easy to operate, this scheme has been adopted by many countries such as Indonesia and Nigeria.

But it must be said once more, when Tengku Razaleigh introduced this scheme in 1974, the countries behind the oil majors looked upon the scheme as a disguised form of nationalization.

It's Risk Sharing Contract now. RSC

Now PETRONAS is embarking on a new approach in extracting oil in our waters. It is now introducing the concept of RSC- Risk Sharing Contract. Two, it is encouraging local players to team up with foreign service providers to extract oil and gas from they termed as marginal oil fields. In all PETRONAS is aiming to develop some 106 fields and 580 million BOEs. That's barrel of oil equivalents.

We must congratulate PETRONAS for finding new commercial methodologies to ensure we get the best from our resource and in that process if we can help our local boys to make money, we do so. This is a straightforward agenda on which little quarrel can be built on.

Our only concern will then be, are the commercial terms sound to ensure that we get the best returns? How do we assign and choose the local players? Who actually talked to Petrofac? How do we ensure technology transfer? The main contractor chosen to lead the recovery from marginal fields for example, how will we ensure they will indeed pass the technical knowhow to the local players?

Since operating from 1974, hasn't PETRONAS acquired the technology transfer it needs to do the jobs themselves? If it's in line with the agenda of nurturing or fast-tracking the capabilities of local players, is RSC the best way to do it?

The boggling question first of all is this. How does PETRONAS define a field as being marginal? The basis of defining has important repercussions. We may justifiably assume that PETRONAS has taken all the meticulous studies to arrive at defining a particular field as marginal. This is to allay fears of a mistaken classification- a still productive field being categorized as marginal.

Surely an important element is the market price of oil and gas. If the quantity is marginal but the price is good, the revenue to be earned is still very large. Even if we call the relevant fields marginal ones, there is still a lot of money to be made and the amount increases as oil prices rise. At 580 million BOE, and using an oil price of US$80 per barrel, the oil is worth nearly RM140 billion! In terms of value, this can hardly be termed as marginal. And surely too, RM140 billion can't be uneconomical to extract. It is important to ensure that PETRONAS does not lose out in this and extracts the best deal for itself.

Then there is the issue of technology transfer. There is a lot of expertise involved and those who extract marginal oil are not going to be sharing their expertise readily with local partners they are forced to take.

The question is, are Kencana and Sapura, and the others who follow them, merely equity partners who provide some amount of oil field services? If that is so, why could not PETRONAS itself have become an equity partner? After all it has the funds and more capability and capacity than all the oil field companies put together. It has its own specialized unit under Carigali. If Carigali is omitted from partaking in exploiting the 'marginal' Berantai Fields, PETRONAS stands accused of shirking its duties to guard our precious resource.

It comes back to the Organizational Disclosure thing in the Report on Promoting Revenue Transparency in Oil & Gas companies. It involves disclosure on PETRONAS's partnership deals and structures.

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comments:

We have to thank the 4th Prime Minister for starting the rot in Petronas. The 5th PM slept through the entire affair and the current 6th PM is.....well.....too busy with other matters. As long as Petronas is still bringing in some small money (and losing out the big money) everything is still hunky dory Rosy in Petronas.

‘Since operating from 1974, hasn't PETRONAS acquired the technology transfer it needs to do the jobs themselves?’

Just look at the comparative operational matrix between Petronas Carigali & the two China petroleum outfits – Sinopec & China National Petroleum Corporation [CNPC]. In fact, back on the day when Carigali was started, those two Apek entities were just nobody afa black oil was mentioned.

Some one might want to compare profit, then, pls do so on apple-to-apple basic. Separate out the ‘rental’ reserve oil profit of Petronas & then zoom-in to that of the Carigali’s exploration ‘profit’. Something could be VERY telling!

So, the question of ‘…the agenda of nurturing or fast-tracking the capabilities of local players,..’ &/or technologies transfer remains a pipe dream. Same, same for so many things in Bolihland.

Make one wondering what went wrong on that theme? People? Organisation? Attitude? Or just gene?

Someone mentioned that u got tons of highly paid locals within the oil sector. Scan carefully, they turn up to be doing ‘talk shows’ & paper-pushing works, while the expats r STILL the one that moves the back room’s wheels!

So how much of the ‘…their employee bonuses...bloody hell. 60 billion per anum.’ is been contributing to the continuing education of syok-sendiri gaji buta of the locals? So any reasons why there r still highly-paid expats doing the backroom works right up to this day.

Ooop, Petronas personnel r highly sourced after by many up & coming 3rd rate oil companies. There will be many interesting stories to be told after 1 year later to their engagements, if u r kind to follow that talk.

H Merican is a different kind of fish (killer shark, perhaps?). But then, u don’t get that many out of the dunggu that thrive within the current Petronas! The red dot DOES know how to scout for REAL talent.

Dear Sak, Risk Sharing contract is a FANCY term to deceive the people just like Project Delivery Partners (PDP).To me,RSC is the 2nd step for Umno to lay their hand into the CASH of Petronas which is the only GLC that a lot of cash - the cherry tree of Malaysia.The first step of this grand design is the removal of Hassan Merican and the appointment of Shamsul Abbas.This RSC contract is very lopsided and Kencana and Sapura will benefit substantially.I am very sure Umno have done a side deal with this 2 companies and some of the money paid to them will be diverted to UMNo.This is the beginning of direct involvement of Umno in Petronas and in the end Petronas will be the next Pertamina.

This Berantai rsc is but the first of four clusters to be contracted out by April whose capex may come to RM10 Billion.

On the radar are actually 106 marginal fields with an estimated total of 580 MM boe; Petronas has proposed to tap but 25 percent, or 27 of those fields, indicating a development cost of RM66 Billion.

The question is whether the rsc's have a market price adjustment clause to maximize Petronas' earnings from such an arrangement, given that Petronas will indirectly be bearing the capex, this argument further reinforced by the price hike now at USD100 a barrel with potential to rise further looking at the incendiary situation in north africa and the middle east.

Secondly and from the feasibility angle, are these rsc's being too fast-tracked when the multinationals themselves had been complaining oil exploration these parts have been too fast-tracked even for major confirmed deposits?

Thirdly, if oil palm companies are super-taxed, won't these rsc companies likewise be super-taxed for a fund to be apportioned to all lower income brackets in the rural areas, perhaps to develop the food supply industry given its increasing strategic importance nowadays, thereby partially compensating for the remiss by the ETP in welfare elevation programs for the poor?

The JPM/EPU/MOF cannot fault the rakyat for asking such questions. Petronas has been a black-box operation for too long and in a manner out of proportion to its importance as the primary national economic banker.

Checks and balances are missing, for the rakyat can ask if JPM had previously fouled up on the toll terms, what assurance do they have it won't on these rsc terms, especially now that JPM has become a behemoth with new wings like FLOM, all taking place while the rakyat are facing a new and most unpalatable prospect of belt-tightening?

As an extension to the whole matter, one suspects if questions are asked on the pricing terms by which the country's natural gas supply has been locked up by the japanese buyers, there will be an uproar.

We tend to remember oil but forget natural gas. Maybe that's because there's too much of that in parliament.

In essence, are we a developing country subsidizing the energy bill of an advanced economy to such an extent we are crimping ourselves from more options to avoid raising tariffs on our own citizens?

Given the present price of oil, such a specter of cost hikes is more than imminent in the next few months.

Dato', how much you pressured them, they will not open up. The most you can get is them spinning a new line. So no surprise if GLC like Petronas scored poorly in TI.

Hence, the public will form perceptions. Of course in this case, the PM's kitty bank (Petronas) is being used to buy off Dr M, who ironically is Petronas's adviser. His son is soon going to be number 1 richest Malaysian in Forbes's list.

2 out of 3 Appeals Court judges ruled last week that the public was not entitled to know details of Water Privatisation (Piratisation?) contracts in Selangor where concessionaires are paid from consumers' pockets??!!

Puncak is now seeking an astounding 35% increase in tariffs based on a chummy one-sided contract signed by ex-MB Toyo despite underperforming in its duties to consumers. In the meantime Puncak and Syabas and Splash have issued $billions of bonds whose interest servicing was wholly hooked to the automatic 35% increase in tariffs? What did they do with all these $billions? Your guess is as good as mine!

The dissenting judge was Hishamuddin Yunos who once ruled detention under ISA was illegal!

So, how are we going to get Petronas to be more transparent when our judges are playing the scrotum stroking game?

I suspect the recent RSC contracts awarded to Mahathir's son and Sapura have much to do with the elevation of one, Omar Ong to the Petronas BoD, i.e. a Najib AND Sil crony.

Take for e.g the MRT/LRT extension contracts awarded to Scomi. Who is actually doing most the work and supplying the coaches? I gather its Bombardiers of Canada. Ali Babaism again?

That's what must be ferretd out in all these "secret" contracts like the RSC - the rent seekers and the Mr.30%'s!

Dato,Wouldn't you agree that this is just another extension of the 'gross abuse of institutions' in the country.The entire system is deformed, crippled and abused. Our institutions left behind by the colonials are almost unrecognizable.The Judiciary has gone to the dogs. So are the Election Commission, MACC, PDRM, civil service, AG chambers and even universities. Our GLCs are in dire straits losing money like water.As far as I am aware the top positions in Petronas, TNB, Telekom Malaysia are reserved for selected Bumi execs but the 'real' work is done by expats. Call them consultants or whatever but without the expats these entities are dead ducks.

from what i hear and see, heh, yeah what else is new, 'gaji buta' is the operative word, and if you're not connected dont dream about a job or a contract from petronas.

im not trying to shoot into the air, its just that most glc's are run this way, its sad sometimes, but to their credit petronas do have talented professionals, the top brass.....well, ill just say this, entah lah.

Its the decision making cog within the company that should be highlighted, justifying their choices of purcahse or venture. There is no such thing as due dilligence...and if theres none of that in a company as big as petronas you can kiss our country sayonara.

If Petronas had included all Malaysians in its plans our per capita income would have increased from Rm400.00 in 1966 to Rm44,000.00 today. A country that did not even have water was able to grow its per capita income by that proportion during the same period. Today I think that Petronas only exists for those who belong to the Putrajaya Class.

The only big pot of money left is in Petronas and there is also a time limit on the pot because in about 10 yrs time, Petronas might produce just enough oil for home consumption and the coffers will run dry.

It is an opportune time to have fancy names to nail the big contracts and share the humongous commissions among the cronies. Petronas is answerable to the PM and our PM is NOT renown for credibility and honesty.

Yes, to get the money, which is the real intention, get Petronas invovled.....another project by Petronas hehehehehehe.

I see Petronas heading towards Nigerian Oil & Pertamina in the future.

Contractors become concessionaires !Last week I took a train to Ipoh from K.L .Inter city train is called ETS which is sold separately in KTM stations ; not at the same counter where you buy KTM tickets . I was told this ETS which runs on KTM tracks is not owned by KTM. So if you want to use KTM trains such as Sinaran Pagi/ senandung malam or economy class, they usually tell you that they are fully booked.As good as telling you to take the private train ETS which runs a few trips daily to and fro. Tickets are sold at RM 30 one-way while the usual economy is RM 12.They stall the other trains to run this privatised outfit on KTM tracks at KTM's expense. Soon KTM will be phased out due to inefficiency.Similarly PETRONAS is dishing out contractors who engaged expatriates with concessions on oil exploration . Well there are so many ways to skin the cat !

What is all the fuss about? The government set up Petronas. Who owns it? Surely its the government. You mean to say it cannot use Petronas money? So what to do with the money? Keep under your mother's bed?

"What is all the fuss about? The government set up Petronas. Who owns it? Surely its the government. You mean to say it cannot use Petronas money? So what to do with the money? Keep under your mother's bed?"

You are every Dictator and Corrupt Leader's Dream.

Ghaddafi and Mubarak became lost when they ran out of people like you.

No, there's no need to keep it under the bantal....Just give it to Rosmah to spend.

Dato'Petronas just said it will spend RM250B over the next 5 years. Considering its black-box operation, be warned that Petronas financial results will be "hit" by this re-investment for the next 5 years. Very convenient.

make no mistake. Shamsul is no different to Hassan. They both think no higher authority knows enough about Q&G to argue against whatever they do. These ignoramus, like the public, will always fall in a 3-card game. Hassan played it very well.

The thing is, Petronas president thinks he is untouchable. He can decide on whatever or whoever he fancies. Hence Shamsul's blunder with head of comms appt, but he got another one safely in, an EVP (ex-JKR and Shell). Note that RSC is an old idea that Shell had once mulled over - so it's not new and has got nothing to do with PM or UMNO.

What's really new is the potent mix of RM250B, RSC and black-box. That's neatly combustible!

And we wonder why Mr President would rather bring in outsiders and not promote qualified, proven and deserving insiders.

the only way for that to happen is to have a leader who's self sacrificing.....and i see no one in the opposition or the federal government.

the problem with any democrasy is that there's always patronage. Call it by whatever name corruption is still corruption. We've seen arguements of privatizing, and we know its just another way to skin the cat. its all about land aqusition and speculation and making huge windfalls from insider trading and looting the organization's coffers.

Be that as it may, we should have leaders who do not come from the mahathir era....leaders should be selected on the ceiling age of 35....the younger generation has what the older generation lack these days.....IDEALISM.

im getting old and to tell you the truth you lose alot of idealism when u face up to the realities of life....it sucks!